Income, rents & super

John asks:
(updated on Friday, February 07th 2020)

I have a question on how income/rents affects the NZ superannuation: I have been told that you must choose the highest income earned then the other is taxed like a secondary? IE: positive income as usual, 10.5%,17.5%, etc. Then the super would attract 17.5%?

I would appreciate clarification on this. And, if it is the case, does that mean that all the rhetoric about super not being taxed no matter how much you have/earn is not quite right?



Our Experts Answer:

Firstly, your entitlement to NZ super is not income tested. It used to be - in the form of the national super surcharge - but that was scrapped. So don't confuse income testing with the actual rate of tax on the income. Super is just a source deducted income much like a salary.

Yes, you should use M code for the highest source of source deducted income. Secondary would be applied to the smaller income source. Secondary tax code is just designed to ensure you don't apply the low tax bands built into M code to both sources of income, which would lead to a tax underpayment and a nasty surprise at year end.

The good news is that if your only income is source deducted, the IRD will automatically refund any over payment. If you also have rents, you will need to file a return and any square up will be dealt with as terminal tax. So ultimately, the overall total of income determines the actual amount of tax, secondary code is just the mechanism to reduce the prospect of a secondary income being taxed at too low an overall rate.

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